Employers: Are You Compliant with Classifying Your Employees?

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As an employer, wage and hour rules can be complex and cause issues, but you’re not alone. Job classifications under the Fair Labor Standards Act (FLSA) can confuse even the most experienced HR managers. Avoid those wage and hour lawsuits and penalties by properly classifying an employee as exempt or nonexempt. If you keep yourself up at night wondering if you’re compliant with federal and state employment laws, then read on and prepare to dream again…

Exempt or nonexempt? That is the Question.

According to FLSA provisions, most employers understand that an exempt employee is not entitled to receive overtime pay for hours worked in excess of forty hours per week, while nonexempt employees are required to receive overtime pay and should be classified as such.

Although, figuring out an employee’s full exempt status is not that simple. A common error is to classify all salaried employees, or all employees with the word “manager” in their title, as exempt. Different types of exemptions exist, most specific to certain jobs or industries – i.e. some only apply to specific agricultural workers, or to interstate truck drivers -- but for most businesses, exempt employees will usually fall into one of the following three “white-collar exemptions:” Executive, Administrative, and Professional.

Each of the white-collar exemptions has two components: 1) A salary requirement and 2) A duties requirement. The salary requirement is the same for each of the three exemptions, but the duties requirements are different.

The salary basis

For an employee to be exempt under any white-collar exemptions, they must be paid on a salary basis. Any paid by the hour, per day, or commission-only, regardless of their title or position, are out of luck. It’s also the amount -- the minimum salary is currently $455.00 per week (or $23,660 per year). This test also provides restrictions on when and how an employer can make deductions from an exempt employee’s salary.

An increase in the minimum salary to $913 (or $47, 476 per year) was scheduled to go into effect December 2016, but industry groups against the measure successfully blocked it. The U.S. Department of Labor (DOL) is exploring alternatives that could appease these groups while keeping regulations in line with the times. The DOL is scheduled to re-start the rule making process in March 2019, and, according to prior statements of current DOL Secretary, Alexander Acosta, the new rule may propose a more modest salary increase to around $634 per week ($32, 968 per year).

Job duties

In addition to salary, employers must look at the actual duties that each white-collar exemption performs to determine whether they meet the criteria. Simply naming an employee “manager” does not automatically qualify the worker as exempt. To be considered under the executive exemption, the most common exemption for managers, this employee would need to supervise two or more (or the equivalent) full-time employees and have the authority to hire and fire. Otherwise, they would need to meet the requirements for one of the other exemptions to be exempt.

Employers should seek a qualified employment law attorney for additional guidance to ensure compliance with applicable overtime laws. But, knowing that these regulations exist and being well-informed of the framework is the first step in understanding overtime obligations – and reducing those wage and hour worries.